Can You Personally Be Liable for Your Business’s Debt?

 Posted on November 14, 2025 in Business Law

Most Florida business owners assume their personal assets are fully protected because they have formed an LLC or corporation as their business model. While LLCs and corporations do offer some protection for the business owner, that protection is not absolute.

Unfortunately, the lines between business and personal finances are often blurred. Owners may engage in questionable transactions or sign personal guarantees for business loans. In these cases, creditors may be able to hold owners, officers, or members personally liable for business debts.

If you have a business in Florida, it is essential that you understand when limited liability ends and personal exposure begins. A highly skilled Broward County, FL business and commercial law attorney can help ensure that your home, savings, and future financial security are safeguarded should your business get into trouble.  

How Do LLCs and Corporations Shield Owners from Most Debts and Lawsuits?

LLCs and Corporations are separate legal entities that prevent creditors and litigants from seizing personal assets, such as savings or homes, for business debts. In fact, the primary function of an LLC or corporation is to serve as a legal barrier between business and personal assets. This limited liability means that the owners are only risking the money they have invested in the company, as long as they maintain the separation between personal and business finances.

The company itself is responsible for its own obligations and debts under LLCs and corporations. If the business takes out a loan and is unable to repay or is sued, the company is the sole target, and only company assets can be used to pay the debt or damages. Business owners (members of an LLC or shareholders in a corporation) are usually liable only up to the amount of their investment. Personal property is generally protected from business-related creditors and lawsuits.

When Can Personal Liability Arise for Florida Business Debts?

There are instances, even when a Florida business has been specifically set up to avoid personal liability, that the "corporate veil" can be pierced. These include:

• A business owner personally guarantees a business loan that cannot be repaid by the business.
• Personal and business funds have been commingled, disregarding the separate legal status of the business, which makes the owner personally liable.
• There has been illegal or fraudulent activity in the business or personal negligence by an employee, officer, or owner.
• Personal expenses have been paid with company funds.
• Officers can be held personally responsible by the IRS and the Florida Department of Revenue for withheld payroll taxes.
• A company has been closed without paying known debts or maintaining sufficient capitalization.   

What Does "Piercing the Corporate Veil" Mean in Florida?

In the state of Florida, "piercing the corporate veil" is a legal action under which a court holds a corporation’s owners personally liable for the debts and actions of the company. When a creditor can prove that the shareholders knowingly used the corporation for improper purposes, and this use caused harm to the creditor, the court will ignore the legal separation between the individuals and the business to prevent injustice. The court will consider whether the owners or shareholders had so much control over the corporation that its separate identity ceased to exist.

If the LLC or corporation was deliberately used to perpetrate fraud or for some other unlawful purpose, such as misleading creditors, then the court may end the separation between the owners and the business. The improper use of the corporation or LLC must have directly caused harm to the creditor. Other issues that can lead to the piercing of the corporate veil include failure to hold regular meetings, maintain accurate minutes, and keep up-to-date corporate records.

How Can Inadequate Capitalization Lead to Owner Liability?

When a business lacks sufficient funds to cover its debts and operations because it was deliberately underfunded right from the start, the protections of limited liability can be legally removed, making the owners personally responsible. Courts consider this to be a serious factor and a deliberate attempt to avoid financial responsibility.

Therefore, when an owner intentionally contributes less capital than the business requires to operate and pay its debts, the company cannot generate sufficient cash flow or cover its expenses, ultimately leading to insolvency. When creditors attempt to collect on the company's debts, they find the company has no assets or woefully insufficient assets.

In this situation, the court may pierce the corporate veil and hold the owner or owners personally liable for the corporation's actions. Courts generally view this as bad faith, determining that the business is a sham, rather than a legitimate, separate entity.

Special Liability Situations That Business Owners Should Be Aware Of

There are certain situations beyond those associated with LLCs and corporations that business owners should be aware of. Partnerships and sole proprietorships offer no limited liability protection at all. Partners and sole owners are automatically responsible for all business debts. Owners should also be cautious when obtaining business credit cards and opening vendor accounts, as many of these carry automatic personal liability clauses that are often hidden in the fine print.  

Professional corporations and professionals like lawyers, doctors, and CPAs remain personally liable for their own malpractice, even within a professional entity. Another special situation is that of those who own franchise businesses. Franchisees often face "hybrid" obligations, where personal and business liability may overlap.   

How Can Owners Protect Themselves from Personal Exposure?  

Business owners should always remember the following to ensure they are protected from personal exposure for business debts or lawsuits:

• Personal and business finances should always be kept absolutely separate.
• Owners should never sign personal guarantees for the business without consulting a knowledgeable business law attorney.
• Proper corporate records and annual filings should be maintained.
• Adequate business insurance should be obtained, possibly with umbrella coverage.
• Contact an attorney before taking on major debt, restructuring, or dissolving a business.
• Always review all contracts, leases, and loan documents for language that includes a personal guarantee.

Contact a Fort Lauderdale, FL Business Law Attorney

Limited liability in Florida is substantial, but not invincible. If you are a Florida business owner who is worried about personal liability or facing creditor claims, you should act quickly before your personal assets are at risk. A Broward County, FL corporate and business lawyer from The Elliot Legal Group, P.A. can review the structure of your business, looking for any potential exposure to ensure your personal finances remain protected. Attorney Elliot is a licensed solicitor in both England and Wales and also practices international business law. Call 754-332-2101 today to schedule your initial meeting with Attorney Elliot.